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Saudi Arabia and Russia oil pact could limit output in future

Sep 06 2016 by Johnny Bowman

At a press conference during the G20 summit now going on in China, Saudi Arabia's energy minister Khalid al-Falih told reporters that the two countries held discussions about the state of the oil markets which brought them "closer together", according to a Reuters report.

Any deal between OPEC and non-OPEC producer Russian Federation would be the first in 15 years since Moscow agreed to cut output in tandem with the cartel at the turn of the millennium, although Russian Federation never followed through on that promise.

At the same time, they did not go as far as saying that they would agree to freeze output in Algeria later this month, but Russia's oil minister Alexander Novaksaid they were discussing the outlines of such a deal.

London Brent crude for November delivery was down 15 cents at US$47.48 (RM193.52) a barrel by 7.22pm, after settling up 80 cents at US$47.63 yesterday. But the lack of concrete agreement quickly saw oil prices come off again, with Brent retracing most of its gains to trade nearer $47 a barrel. Greater co-operation has been under discussion for nearly a year, but lower prices and the geopolitics of the Middle East, not least the two countries' support for opposing sides in Syria's civil war, is an ongoing strain.

The global benchmark yesterday hit a near one-week high of US$49.40 after the Russia-Saudi news.

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He added that Russian Federation was willing to join an oil output "freeze". Among possible measures they named the "freeze" of oil production.

His Saudi Arabian counterpart, Khalid Al-Falih, called on other producers to join the agreement, so that a consensus can be reached.

Talking to Kommersant-FM radio, Novak said Oilprices between $50 and $60 would be fair for everyone. The favoured son of King Salman, MBS exerts great control over the Saudi economy, including plans to transform it through listing a stake in state oil company Saudi Aramco. "That would probably be the last thing they want as long as Iran is raising output". After falling sharply in early trade, Brent crude was up four cents at $46.87 at about 0650 GMT while U.S. benchmark West Texas Intermediate was five cents down at $44.39.

That helped squeezed some higher-cost production out of the market and slashed investment, but has also sparked a fight for market share both inside and outside Opec. "The market is improving day by day". For instance, in August, Russian oil minister Alexander Novak told a Saudi newspaper: "With regard to the cooperation with Saudi Arabia, the dialogue between our two countries is developing in a tangible way, whether in the framework of a multi-party structure or on a bilateral level".